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Some market participants believe that in response to Japanese monetary policy, a “wall of money” may hit global financial markets, supporting all asset classes, as excess yen liquidity “leaks out&rdq..

22 Apr 2013

LONDON (Commodity Online): The macro backdrop remains gold-supportive, and prices may average $1500/oz in the fourth quarter of 2013. Also, for 2013, prices are expected to average $1483/oz, stated London based Barclays in its recent market analysis.

Demand from India and China has responded strongly to lower gold prices but, according to Barclays, given the sizeable cash-negative ETP holdings at current price levels, the near term looks fragile and prices could be exposed to further downside risk.

In the US this week, the Q1 GDP advance release will be on Friday 26 April. Economists at Barclays expect the release to show real growth rate of 3% annualised. Their Q1 GDP tracking estimate remains at 3%, in line with their forecast, and they expect modestly stronger private consumption growth, residential investment, and a smaller decline in government spending.

This week in Europe, euro area PMI (Tuesday) and Germany’s IFO (Wednesday) data could push the ECB to cut rates, according to Barclays.

Particularly important for measuring the Euro area’s economic pulse, Barclays economists expect some stabilisation in economic activity, or even a mild improvement.

According to Barclays, a rate cut as useful in reducing bank funding costs and lowering the cap on EONIA from 75bp to 50bp.

In Japan, financial conditions remain accommodative and have become substantially more so. Barclays economists do not expect the BoJ’s monetary policy meeting on Friday 26 April to reveal any further easing.

Some market participants believe that in response to Japanese monetary policy, a “wall of money” may hit global financial markets, supporting all asset classes, as excess yen liquidity “leaks out” of Japan. Barclays see this as unlikely, but they do see Japanese flows likely supporting global bond markets.

Net ETP redemptions have reached 117 tons for the month to date, already surpassing February as the weakest month on record. Outflows have reached 277 tons for the year-to-date, which is almost equivalent to inflows in 2012 at 279 tons.

At current price levels, 270 tons of gold holdings are cash negative, and in according to Barclays view, continue to pose the largest downside risk to prices in the near term. Although net redemptions have not hit a daily record high (32 tons in January 2011), they have not shown any real signs of slowing down either.

Technical Strategy: Bearish

Last week’s break below the important range lows near 1521 signals a deeper-than-initially-expected pull back in gold. For now, Barclays view this as a cyclical correction rather than a major reversal.

According to Barclays revised downside targets are in the 1275 area, which would equate to a similar percentage decline off the highs, as was seen back in 2008. It would take a move back above the former lows near 1521 to alleviate the current downside pressure.

--Support: 1340, 1321, 1275
--Resistance: 1426, 1455, 1521


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